Intrusion Inc (INTZ) 2008 Q1 法說會逐字稿

Good afternoon.

I will be your conference operator today.

At this time, I would like to welcome everyone to the Intrusion Inc.

first quarter 2008 financial conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(OPERATOR INSTRUCTIONS) Thank you.

Mr.

Mike Paxton, you may begin your conference.

Thanks.

This is Michael Paxton, Chief Financial Officer for Intrusion.

Welcome to this afternoon's conference call to review our first quarter 2008 financial results and discuss our business.

Participating on the call today will be Ward Paxton, Chairman, President, and CEO; and Joe Head, Vice President Strategic Projects.

Ward will discuss Intrusion's financial results and current activities.

Joe will give a current business update, specific to our TraceCop product line.

We'll be glad to answer any questions in the question and answer session after our prepared remarks.

We distributed the earnings release around 3:05 p.m.

Central time today.

A replay of this conference call will be available from approximately 7 p.m.

Central time today until May 20.

The replay conference call number is 800-642-1687.

At the replay prompt enter conference ID 46941655.

In addition, a live and archived audio webcast of the call is available at our website Intrusion.com.

In today's call Company executives may be making several forward-looking statements with respect to financial results, business strategies, industry trends, and certain other matters.

These statements are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements.

Additionally, we may be discussing our current outlook for 2008 which is based on our own internal projections.

These projections are based on limited information available to us now relatively early in the current year.

It is routine for our internal projections on which we base our guidance today to change and it could change prior to the end of next quarter and/or the end of the year.

Of course actual results may differ substantially from projections.

The Company assumes no obligation to update information concerning our expectations.

Many factors could cause our projections not to be achieved including but not limited to the uncertainties and lack of visibility caused by current economic and market conditions and other factors which can be found in our most recent filing with the SEC including the section entitled factors that might affect future results of operations.

In our most recent 10-K filed in March of 2008.

If you need a copy of today's press press release or Intrusion's prior SEC filings, please call us or visit our website at Intrusion.com.

Now I will turn the call over to Chairman, President, and CEO, Ward Paxton.

Thank you, Mike.

Welcome to the Intrusion first quarter conference call.

Revenue for the first quarter 2008 was about $0.5 million compared to $1.1 million for the first quarter 2007.

Revenue in the first quarter was reduced significantly because of slippage of U.S.

government contracts due to the late congressional approval of the 2008 defense budget.

Finally, this is behind us now, and we expect better times ahead.

We have booked $1,250,000 of new TraceCop orders since the beginning of the second quarter which is in addition to the $700,000 of new TraceCop orders announced in late March.

This total of nearly $2 million of new TraceCop orders is expected to produce revenue over the next twelve months.

This is significantly higher rate of order entry than we've experienced in the last year or so.

We're extremely excited about it.

We were able to maintain our gross profit margin at 61% of revenue in the first quarter which is about the same as it was for the first quarter last year.

We're able to do that in spite of the significant lower revenue level.

We controlled our operating expenses at $1.2 million in the first quarter which is about the same as the first quarter last year.

The operating loss for the first quarter of 2008 was about $900,000 compared to $0.5 million in the first quarter of 2007.

In spite of these terrible financial results, I am extremely excited by our prospects for the future, both near term and long-term.

This excitement is driven by several factors.

Number one, the recent large orders that we've just mentioned.

Number two, significant broadening of our marketing activities.

Number three, good engineering advances in the products.

And number four, perhaps the most important, outstanding results in the field.

Our customers like our products and like what we do.

As you know, we have three product families, TraceCop, our product used to track down the bad guys, Compliance Commander, our product for regulated information compliance and data loss prevention, SecureNet, a product for network Intrusion prevention.

Over the past few quarters we have generated significantly more traction with TraceCop than the other two products.

Most importantly, we have greatly increased our TraceCop marketing efforts and plan to continue to expand marketing and sales efforts for TraceCop in the future both with Intrusion personnel and with strategic partners.

All of our TraceCop sales activities are directed toward the Federal Government, and we have broadened our government customer base and plan to continue to increase the number of these government customers.

Our sales and marketing efforts for Compliance Commander are primarily directed toward banks, credit unions, and healthcare organizations.

For Compliance Commander we continue to reach the marketplace primarily through strategic resale partners.

Our Compliance Commander product development efforts are focused on increasing features and broadening specifications, and we're making good strides forward in these areas.

Joe Head, co-Founder of Intrusion and Vice President in our charge of our TraceCop business is with us today.

Joe, tell us a little about the current TraceCop business activities.

Okay, Ward.

Well, as Ward mentioned today, we're announcing three orders totaling $1.25 million, keeping tab -- sorry for my flu if I sound weird, it is because I feel that way.

Keeping tabs on our progress towards expanding the customer base and holding on to previous customers.

As we previously reported, we had three customers for TraceCop and they continue to be good customers although two of them have been suffering from the congressional budget delays.

Those delays are now behind us.

I reported in the last conference call that we were expecting all three previous TraceCop customers to continue doing business with us.

One renewal was announced last quarter, and two renewals were announced today, so all three of our previous TraceCop customers have sent through their next rounds of expected renewals.

The two smaller ones represent incremental funding for ongoing projects, TraceCop, but the largest of the three new orders is for new business for a new customer thus we booked one of the eight orders reported in the last quarter that we were chasing that I characterized as equal to or larger than our previous largest order sizes.

On the salesforce expansion side as reported we went from one to three internal folks marketing our TraceCop products.

We also continued to expand work with one defense contractor that's engaged with us, and they are actively pursuing 6 of our 14 new projects with us, and they represent a good expansion of the number of the feet on the street promoting our products to new customers outside our traditional base.

The projects are still on track and winding their way through the procurement process and it is looking good.

The number of new projects and their tempo is in alignment with my hopes from the last quarter with the number of products we're engaged with increasing again over the last quarter, and that increase represents new opportunities from new groups and organizations we haven't previously done business with along with expansion of new products at previous customers.

The last time I mentioned favorable results and expanding the number of projects at new groups and organizations we haven't previously done business with, actively and on a daily basis we're chasing 16 new projects from 7 new customers on magnitude nine of these projects are equal to or larger than our largest historical project order sizes, five are average size, and two are small and developmental.

Ward.

Thanks, Joe.

To summarize we've been working extremely hard to increase our revenue.

The significant increased order rate we have seen in the past month is very exciting, and the number of new projects we're currently pursuing is substantial.

Our expenses are under tight control, and we expect to begin making a profit with revenues between 1.5 million and $2 million a quarter not far away.

We have made a lot of progress and are very excited by the outlook.

Thank you.

Mike?

Could you please remind the participants how to queue up to ask questions?

Certainly, sir.

(OPERATOR INSTRUCTIONS) Your first question is from the line of [Walter Schenker] from [Pykken].

Please go ahead.

Hi, Ward, hi, Michael.

Hello, Walter.

I guess the question is will there be a second caller.

We really stuck on TraceCop.

I will ask a couple of questions there and would like to get also some update on Compliance Commander where in the past you've talked about, I haven't said anything, about it broadening to larger customers and VARs which don't seem to be making much progress.

Let's come back to that.

Last call you talked about eight projects.

Now we're talking about 16 projects.

We've only closed one of them.

Does that mean we've lost some of them or are they just still winding along?

I believe there was -- on the last quarter I talked about eight large projects, 13 total, and now we have nine large projects, 16 total, and counting the one that we've already closed, that would be basically 17 and 10.

Does that make sense?

Yes.

I don't think we've lost any projects, Walter.

They're continuing to grow.

We're net up three on the large ones and one on the medium and closed one.

Just without defining any one project, could you just put a center or range of what a large project is?

Is it $0.5 million, $1 million?

Some range of $0.5 million to $1 million or whatever large or medium really mean?

In general, I guess, large projects, kind of $1 million a year type project, Walter.

That varies from $0.5 million to more, but that's kind of the way we think.

Yes.

Therefore medium would be something under $0.5 million or around $0.5 million?

Something like that.

Okay.

You would hope because you're always extremely optimistic, so we won't use optimistic, that we can close a number of those over the coming quarters?

Yes.

Yes.

We are very bullish about our opportunity to continue to close significant TraceCop business.

Quite a number of those are already past the quote and already said they have the money.

It is just a matter of getting the funds committed and deciding, yes, they want to do it or no, they don't.

If we have eight large out of the total of 16 or 17, I don't care about the number, and if we were to close which probably won't happen, all the TraceCop offers, we would be profitable because that would be enough revenue in theory to get us up to eight $1 million contracts plus what we got, we would be up to $1.5 million a quarter just from that?

That would be a lot more than we need.

Okay.

Good.

Then the second question, you can cut me off if there is a long line behind me.

Can you just give us some update on what's happening with Compliance Commander and why we don't seem to be making progress?

Well, we're certainly not seeing a ramp up in revenue in Compliance Commander.

We are continuing, though, to focus on larger customers and larger resell partners and are making progress there.

It just continues to take longer than we would like, but we are working on several projects right now.

We're pretty optimistic about the results, but don't have tangible revenue growth to show.

At the same time I guess for all of last year Compliance Commander generated about $600,000 revenue which is about the same as the year before, so it is not growing, but kind of been hanging in there.

And we have a shot at that volume again this year?

I think so, yes.

And last question, how much are we into you for now, just discuss Company finances, how much the Company owes probably to you and what the credit line remains?

I believe we announced here in the financials about $700,000 loan balance to an officer which is me, me, and in the K we indicated that I had committed an additional $1.5 million over the course of this year of financing.

Good thing you're not running out of money, Ward.

Well, as I indicated there at the beginning in spite of the poor look of the numbers, we've made outstanding progress here in the last four or five months and are very excited about the turning points that we see there.

Thanks a lot.

Thank you, Walter.

(OPERATOR INSTRUCTIONS)

If we don't have any more questions at this time, we'll wrap up the call.

Thank you for participating in today's call.

If you did not receive a copy of the press release, or if you have any further questions, you can call us at 972-234-6400.

Thanks a lot.

This does conclude today's conference call.

You may now disconnect.